HEALTHSTREAM INC

Previous wording

Significant financial metrics for the first quarter of 2024 are set forth in the bullets below.

Current wording

Significant financial metrics for the second quarter of 2024 are set forth in the bullets below.

Previous wording

Macroeconomic conditions in the U.S. continue to be challenging in various respects, including as the result of ongoing inflationary pressures, elevated interest rate levels, challenging labor market conditions, and uncertain geopolitical conditions. In this regard, we have experienced in certain recent periods, and believe that many of our customers have experienced, increased labor, supply chain, capital, and other expenditures associated with current inflationary pressures. These conditions impacting the U.S. economy and our customers in the healthcare industry have adversely affected, and may continue to adversely impact, our business and results of operations.

Current wording

Macroeconomic conditions in the U.S. continue to be challenging in various respects, including as the result of inflationary conditions, elevated interest rate levels, and uncertain geopolitical conditions. In this regard, we have experienced in certain recent periods, and believe that many of our customers have experienced, increased labor, supply chain, capital, and other expenditures associated with inflationary conditions. These conditions impacting the U.S. economy and our customers in the healthcare industry have adversely affected, and may continue to adversely impact, our business and results of operations.

Previous wording

The Company’s Condensed Consolidated Financial Statements are prepared in accordance with US GAAP. These accounting principles require us to make certain estimates, judgments, and assumptions during the preparation of our Financial Statements. We believe the estimates, judgments, and assumptions upon which we rely are reasonable based upon information available to us at the time they are made. These estimates, judgments, and assumptions can affect the reported amounts of assets and liabilities as of the date of the Financial Statements, as well as the reported amounts of revenues and expenses during the periods presented and related disclosures. To the extent there are material differences between these estimates, judgments, or assumptions and actual results, our Financial Statements will be affected.

Current wording

The Company’s Condensed Consolidated Financial Statements are prepared in accordance with US GAAP. These accounting principles require us to make certain estimates, judgments, and assumptions during the preparation of our Condensed Consolidated Financial Statements. We believe the estimates, judgments, and assumptions upon which we rely are reasonable based upon information available to us at the time they are made. These estimates, judgments, and assumptions can affect the reported amounts of assets and liabilities as of the date of the Condensed Consolidated Financial Statements, as well as the reported amounts of revenues and expenses during the periods presented and related disclosures. To the extent there are material differences between these estimates, judgments, or assumptions and actual results, our Condensed Consolidated Financial Statements will be affected.

Previous wording

*Revenues, net.*Revenues increased $3.8 million, or 6%, to $72.8 million for the three months ended March 31, 2024 from $68.9 million for the three months ended March 31, 2023. Subscription revenues increased $4.2 million, or 6%, but were partially offset by $0.4 million of declines from professional services revenues.

Current wording

*Revenues, net.*Revenues increased $2.4 million, or 3%, to $71.6 million for the three months ended June 30, 2024 from $69.2 million for the three months ended June 30, 2023. Subscription revenues increased $2.5 million, or 4%, but were partially offset by $0.1 million of declines from professional services revenues.

Previous wording

Product Development. Product development expenses increased $0.3 million, or 3%, to $12.0 million for the three months ended March 31, 2024, from $11.7 million for the three months ended March 31, 2023. Product development expenses as a percentage of revenues were 17% for both the three months ended March 31, 2024 and 2023. The increase in expense is primarily due to an increase in labor costs, partially offset by an increase in labor capitalized for internally developed software.

Current wording

Product Development. Product development expenses increased $1.1 million, or 9%, to $12.1 million for the three months ended June 30, 2024, from $11.0 million for the three months ended June 30, 2023. Product development expenses as a percentage of revenues were 17% and 16% for the three months ended June 30, 2024 and 2023, respectively. The increase is primarily due to an increase in labor costs, partially offset by an increase in labor capitalized for internally developed software.

Previous wording

Sales and Marketing. Sales and marketing expenses, including personnel costs, increased $45,000 to $11.8 million for the three months ended March 31, 2024, from $11.7 million for the three months ended March 31, 2023. Sales and marketing expenses were 16% and 17% of revenues for the three months ended March 31, 2024 and 2023, respectively. The increase in expense is primarily due to increases in general marketing expenses, travel expenses, and commissions, which were partially offset by a decrease in labor costs.

Current wording

Sales and Marketing. Sales and marketing expenses, including personnel costs, increased $0.1 million, or 1%, to $11.4 million for the three months ended June 30, 2024, from $11.3 million for the three months ended June 30, 2023. Sales and marketing expenses were 16% of revenues for both the three months ended June 30, 2024 and 2023. The increase in expense is primarily due to increases in general marketing expenses, travel expenses, and commissions, which were partially offset by a decrease in labor costs.

Previous wording

*Depreciation and Amortization.*Depreciation and amortization expense increased $0.4 million, or 4%, to $10.3 million for the three months ended March 31, 2024, from $9.9 million for the three months ended March 31, 2023. This increase is primarily a result of an increase in amortization associated with capitalized software.

Current wording

*Depreciation and Amortization.*Depreciation and amortization expense increased $0.2 million, or 1%, to $10.4 million for the three months ended June 30, 2024, from $10.2 million for the three months ended June 30, 2023. This increase is primarily a result of an increase in amortization associated with capitalized software.

Previous wording

Other Income, Net. Other income, net was $0.9 million for the three months ended March 31, 2024, compared to $0.3 million for the three months ended March 31, 2023. The increase is primarily the result of an increase in interest income earned on cash and investments during the three months ended March 31, 2024.

Current wording

Other Income, Net. Other income, net was $0.9 million for the three months ended June 30, 2024, compared to $0.5 million for the three months ended June 30, 2023. The increase is primarily the result of an increase in interest income earned on cash and investments during the three months ended June 30, 2024.

Previous wording

*Income Tax Provision.*The Company recorded a provision for income taxes of $1.3 million for the three months ended March 31, 2024, compared to $0.5 million for the three months ended March 31, 2023. The Company’s effective tax rate was 20% for the three months ended March 31, 2024, compared to 16% for the three months ended March 31, 2023. The Company’s effective tax rate primarily reflects the statutory corporate income tax rate, the net effect of state taxes, foreign income taxes, the effect of various permanent tax differences, and recognition of discrete tax items. During the three months ended March 31, 2024, the Company recorded discrete tax benefits of $17,000, which consisted primarily of a $129,000 tax benefit associated with stock-based awards, partially offset by $112,000 of discrete tax expense related to reserves for uncertain tax positions. During the three months ended March 31, 2023, the Company recorded discrete tax benefits of $53,000, which consisted primarily of a $133,000 tax benefit associated with stock-based awards. This tax benefit was partially offset by $80,000 of discrete tax expense related to uncertain tax positions.

Current wording

*Income Tax Provision.*The Company recorded a provision for income taxes of $1.1 million for the three months ended June 30, 2024, compared to $0.4 million for the three months ended June 30, 2023. The Company’s effective tax rate was 21% for the three months ended June 30, 2024, compared to 8% for the three months ended June 30, 2023. The Company’s effective tax rate primarily reflects the statutory corporate income tax rate, the net effect of state taxes, foreign income taxes, the effect of various permanent tax differences, and recognition of discrete tax items. During the three months ended June 30, 2024, the Company recorded discrete tax expense of $31,000, which consisted primarily of discrete tax expense related to reserves for uncertain tax positions. During the three months ended June 30, 2023, the Company recorded discrete tax benefits of $0.5 million, which consisted primarily of tax benefits in the amount of $0.6 million resulting from changes in apportionment rules in Tennessee upon the enactment of the Tennessee Works Tax Act, partially offset by $0.1 million of discrete tax expense related to reserves for uncertain tax positions.

Previous wording

*Net Income.*Net income was $5.2 million and $2.6 million for the three months ended March 31, 2024 and 2023, respectively. EPS was $0.17 per share (diluted) and $0.09 per share (diluted) for the three months ended March 31, 2024 and 2023, respectively.

Current wording

*Net Income.*Net income was $4.2 million and $4.1 million for the three months ended June 30, 2024 and 2023, respectively. EPS was $0.14 per share (diluted) and $0.13 per share (diluted) for the three months ended June 30, 2024 and 2023, respectively.

Previous wording

Adjusted EBITDA was $17.1 million for the three months ended March 31, 2024, compared to $13.7 million for the three months ended March 31, 2023. See “Reconciliation of Non-GAAP Financial Measures” below for our reconciliation of adjusted EBITDA to the most directly comparable measure under US GAAP and disclosure regarding why we believe adjusted EBITDA provides useful information to investors.

Current wording

Adjusted EBITDA was $15.8 million for the three months ended June 30, 2024, compared to $15.3 million for the three months ended June 30, 2023. See “Reconciliation of Non-GAAP Financial Measures” below for our reconciliation of adjusted EBITDA to the most directly comparable measure under US GAAP and disclosure regarding why we believe adjusted EBITDA provides useful information to investors.

Previous wording

*Cost of Revenues (excluding Depreciation and Amortization).*Cost of revenues increased $0.7 million, or 3%, to $24.6 million for the three months ended March 31, 2024, from $23.9 million for the three months ended March 31, 2023. Cost of revenues as a percentage of revenues were 34% and 35% for the three months ended March 31, 2024 and 2023, respectively. The increase in expense is primarily associated with higher costs for cloud hosting, royalties, and software, which were partially offset by a reduction in labor costs. Labor costs recognized during the three months ended March 31, 2023 included severance costs incurred in connection with the Company's previously disclosed restructuring under a single platform strategy.

Current wording

*Cost of Revenues (excluding Depreciation and Amortization).*Cost of revenues increased $1.0 million, or 2%, to $48.4 million for the six months ended June 30, 2024, from $47.4 million for the six months ended June 30, 2023. Cost of revenues as a percentage of revenues were 34% for both the six months ended June 30, 2024 and 2023. The increase in expense is primarily associated with higher software expenses and cloud hosting costs, partially offset by lower labor costs. Labor costs recognized during the six months ended June 30, 2023 included severance costs incurred in connection with the Company's previously disclosed restructuring under a single platform strategy.

Previous wording

Other General and Administrative Expenses. Other general and administrative expenses decreased $0.6 million, or 6%, to $8.3 million for the three months ended March 31, 2024, from $8.9 million for the three months ended March 31, 2023. Other general and administrative expenses were 11% and 13% of revenues for the three months ended March 31, 2024 and 2023, respectively. The decrease is primarily due to lower labor costs and professional service fees, which were partially offset by higher software expenses.

Current wording

Other General and Administrative Expenses. Other general and administrative expenses decreased $60,000 to $17.9 million for the six months ended June 30, 2024, from $17.9 million for the six months ended June 30, 2023. Other general and administrative expenses were 12% and 13% of revenues for the six months ended June 30, 2024 and 2023, respectively. The decrease is primarily due to lower labor costs, professional service fees, and rent expense, which were partially offset by an increase in bad debt expense of $1.4 million, which was primarily associated with a customer bankruptcy.

Previous wording

As previously disclosed, prior to the Company early adopting ASU 2021-08 effective January 1, 2022, following the completion of any acquisition by the Company, the Company was required to record the acquired deferred revenue at fair value as defined in GAAP, which typically resulted in a write-down of the acquired deferred revenue. In connection therewith, management determined that including an adjustment in the definition of adjusted EBITDA for the impact of the deferred revenue write-downs associated with fair value accounting for businesses acquired prior to the January 1, 2022 effective date of the Company's adoption of ASU 2021-08 (the “Pre-2022 Acquisitions”) provided useful information to investors because the deferred revenue write-down recognized in periods after any such Pre-2022 Acquisition could, given the nature of this non-cash accounting impact, cause our GAAP financial results during such periods to not fully reflect our underlying operating performance. Following the adoption of ASU 2021-08, contracts acquired in an acquisition completed on or after January 1, 2022 have been measured as if the Company had originated the contract (rather than the contract being measured at fair value) such that, for such acquisitions, the Company no longer records deferred revenue write-downs associated with acquired businesses. With respect to periods ended on or prior to December 31, 2023, the Company has included an adjustment in the calculation of adjusted EBITDA for the impact of deferred revenue write-downs associated with the Pre-2022 Acquisitions consistent with this prior accounting standard, given the ongoing impact of such deferred revenue on the Company's financial results under GAAP over this time period. With respect to periods beginning on or after January 1, 2024, the Company is no longer recognizing any deferred revenue write-downs associated with the Pre-2022 Acquisitions under GAAP, and accordingly such deferred revenue write-downs are no longer an adjustment in connection with the calculation of adjusted EBITDA for periods beginning on and after January 1, 2024.

Current wording

As previously disclosed, prior to the Company early adopting ASU 2021-08 effective January 1, 2022, following the completion of any acquisition by the Company, the Company was required to record the acquired deferred revenue at fair value as defined in GAAP, which typically resulted in a write-down of the acquired deferred revenue. In connection therewith, management determined that including an adjustment in the definition of adjusted EBITDA for the impact of the deferred revenue write-downs associated with fair value accounting for businesses acquired prior to the January 1, 2022 effective date of the Company's adoption of ASU 2021-08 (the “Pre-2022 Acquisitions”) provided useful information to investors because the deferred revenue write-down recognized in periods after any such Pre-2022 Acquisition could, given the nature of this non-cash accounting impact, cause our GAAP financial results during such periods to not fully reflect our underlying operating performance. Following the adoption of ASU 2021-08, contracts acquired in an acquisition completed on or after January 1, 2022 have been measured as if the Company had originated the contract (rather than the contract being measured at fair value) such that, for such acquisitions, the Company no longer records deferred revenue write-downs associated with acquired businesses. With respect to periods ended on or prior to December 31, 2023, the Company has included an adjustment in the calculation of adjusted EBITDA for the impact of deferred revenue write-downs associated with the Pre-2022 Acquisitions consistent with this prior accounting standard, given the ongoing impact of such deferred revenue on the Company's financial results under GAAP over this time period. With respect to periods beginning on or after January 1, 2024, the Company no longer recognizes any deferred revenue write-downs associated with the Pre-2022 Acquisitions under GAAP, and accordingly such deferred revenue write-downs are not an adjustment in connection with the calculation of adjusted EBITDA for periods on and after January 1, 2024.

Previous wording

Net cash provided by operating activities increased by $0.4 million to $20.9 million during the three months ended March 31, 2024, from $20.5 million during the three months ended March 31, 2023. The increase in net cash provided by operating activities is primarily due to higher cash collections compared to the prior year period. Our days sales outstanding ("DSO") was 46 days for the first quarter of 2024 compared to 51 days for the first quarter of 2023. The Company calculates DSO by dividing the average accounts receivable balance for the quarter by average daily revenues for the quarter. The Company’s primary sources of cash were receipts generated from the sales of our products and services. The primary uses of cash to fund operations included personnel expenses, sales commissions, royalty payments, payments for contract labor and other direct expenses associated with delivery of our products and services, income tax payments, and general corporate expenses.

Current wording

Net cash provided by operating activities increased by $1.9 million to $27.4 million during the six months ended June 30, 2024, from $25.5 million during the six months ended June 30, 2023. The increase in net cash provided by operating activities is primarily due to higher cash collections compared to the prior year period, but was partially offset by a $3.0 million increase in income tax payments. Our days sales outstanding (“DSO”) was 45 days for the second quarter of 2024 compared to 50 days for the second quarter of 2023. The Company calculates DSO by dividing the average accounts receivable balance for the quarter by average daily revenues for the quarter. The Company’s primary sources of cash were receipts generated from the sales of our products and services. The primary uses of cash to fund operations included personnel expenses, sales commissions, royalty payments, payments for contract labor and other direct expenses associated with delivery of our products and services, income tax payments, and general corporate expenses.

Previous wording

Net cash used in investing activities was $7.1 million for the three months ended March 31, 2024, compared to $16.9 million for the three months ended March 31, 2023. During the three months ended March 31, 2024, the Company invested in marketable securities of $14.1 million, made payments for capitalized software development of $7.0 million, and purchased property and equipment of $0.7 million. These uses of cash were partially offset by $14.0 million in maturities of marketable securities and $0.8 million received upon the settlement and release of escrowed proceeds related to a prior sale of a non-marketable equity investment. During the three months ended March 31, 2023, the Company spent $6.6 million for the acquisition of substantially all of the assets of Electronic Education Documentation System, LLC ("eeds") (note: the eeds acquisition was consummated on December 31, 2022, but was funded in January 2023 such that the purchase price for eeds impacted net cash used in investing activities during the three months ended March 31, 2023), invested in marketable securities of $2.9 million, made payments for capitalized software development of $7.6 million, and purchased property and equipment of $0.9 million. These uses of cash were partially offset by $1.0 million in maturities of marketable securities.

Current wording

Net cash used in investing activities was $19.0 million for the six months ended June 30, 2024, compared to $43.3 million for the six months ended June 30, 2023. During the six months ended June 30, 2024, the Company invested in marketable securities of $34.5 million, made payments for capitalized software development of $13.6 million, and purchased property and equipment of $0.9 million. These uses of cash were partially offset by $29.2 million in maturities of marketable securities and $0.8 million received upon the settlement and release of escrowed proceeds related to a prior sale of a non-marketable equity investment. During the six months ended June 30, 2023, the Company spent $6.6 million for the acquisition of substantially all of the assets of Electronic Education Documentation System, LLC (“eeds”) (note: the eeds acquisition was consummated on December 31, 2022, but was funded in January 2023 such that the purchase price for eeds impacted net cash used in investing activities during the six months ended June 30, 2023), invested in marketable securities of $32.0 million, made payments for capitalized software development of $13.3 million, and purchased property and equipment of $1.4 million. These uses of cash were partially offset by $10.0 million in maturities of marketable securities.

Previous wording

Net cash used in financing activities was approximately $1.7 million for the three months ended March 31, 2024, compared to $0.8 million for the three months ended March 31, 2023. The uses of cash for the three months ended March 31, 2024 included $0.8 million for the payment of cash dividends and $0.9 million for the payment of employee payroll taxes in relation to the vesting of restricted share units. The uses of cash for the three months ended March 31, 2023 included $0.8 million for the payment of employee payroll taxes in relation to the vesting of restricted share units.

Current wording

Net cash used in financing activities was $2.6 million for the six months ended June 30, 2024, compared to $2.3 million for the six months ended June 30, 2023. The uses of cash for the six months ended June 30, 2024 included $1.7 million for the payment of cash dividends and $0.9 million for the payment of employee payroll taxes in relation to the vesting of RSUs. The uses of cash for the six months ended June 30, 2023 included $1.5 million for the payment of cash dividends and $0.8 million for the payment of employee payroll taxes in relation to the vesting of RSUs.

Previous wording

Our balance sheet reflects positive working capital of $21.3 million at March 31, 2024, compared to positive working capital of $11.8 million at December 31, 2023. The increase in working capital is primarily a result of an increase in cash and cash equivalents. The Company’s primary source of liquidity as of March 31, 2024 was $52.4 million of cash and cash equivalents and $31.3 million of marketable securities.

Current wording

Our balance sheet reflects working capital of $27.2 million at June 30, 2024, compared to $11.8 million at December 31, 2023. The increase in working capital is primarily a result of an increase in cash and cash equivalents. The Company’s primary source of liquidity as of June 30, 2024 was $46.1 million of cash and cash equivalents and $36.9 million of marketable securities.

Previous wording

On October 6, 2023, the Company entered into a new revolving credit facility, which amended and replaced our prior revolving credit facility. There currently are no outstanding borrowings under our revolving credit facility. For additional information regarding our revolving credit facility, see Note 8 to the Condensed Consolidated Financial Statements included herein.

Current wording

The Company also has a $50.0 million revolving credit facility. There currently are no outstanding borrowings under the revolving credit facility. The revolving credit facility expires on October 6, 2026, unless earlier renewed or amended. For additional information regarding our revolving credit facility, see Note 8 to the Condensed Consolidated Financial Statements included herein.

Previous wording

On February 20, 2023, we announced that our Board approved a quarterly dividend policy. Under this dividend policy, our Board declared, and the Company paid, quarterly cash dividends on our common stock at the rate of $0.025 per share during the year ended December 31, 2023. In addition, on February 19, 2024, our Board approved a quarterly dividend under this dividend policy at a rate of $0.028 per share, which was paid on March 22, 2024 to the holders of record of our common stock on March 11, 2024. Moreover, on April 22, 2024, the Board approved a quarterly cash dividend of $0.028 per share, which will be payable on May 17, 2024 to holders of record of our common stock on May 6, 2024.

Current wording

On February 20, 2023, we announced that our Board approved a quarterly dividend policy. Under this dividend policy, our Board declared, and the Company paid, quarterly cash dividends on our common stock at the rate of $0.025 per share during the year ended December 31, 2023. On February 19, 2024, our Board approved a quarterly dividend under this dividend policy at a rate of $0.028 per share, which was paid on March 22, 2024 to the holders of record of our common stock on March 11, 2024. On April 22, 2024, the Board approved a quarterly cash dividend of $0.028 per share, which was paid on May 17, 2024 to holders of record of our common stock on May 6, 2024. Moreover, on July 22, 2024, the Board approved a quarterly cash dividend of $0.028 per share, which will be payable on August 16, 2024 to holders of record of our common stock on August 5, 2024.

Previous wording

The dividend policy and the declaration and payment of each quarterly cash dividend will be subject to our Board’s continuing determination that the policy and the declaration and payment of dividends thereunder are in the best interests of our stockholders and are in compliance with applicable law and our credit agreement. Our Board retains the power to modify, suspend, or cancel the dividend policy and quarterly dividends thereunder in any manner and at any time that our Board may deem necessary or appropriate.

Current wording

The dividend policy and the declaration and payment of each quarterly cash dividend will be subject to our Board’s continuing determination that the policy and the declaration and payment of dividends thereunder are in the best interests of our shareholders and are in compliance with applicable law and our credit agreement. Our Board retains the power to modify, suspend, or cancel the dividend policy and quarterly dividends thereunder in any manner and at any time that our Board may deem necessary or appropriate.